What Is an Umbrella Policy?

I’ve recently had several clients ask me what an umbrella policy is and if they need one. If you have assets that you’d like to protect from an unexpected lawsuit, you probably need an umbrella!Imagine that you are driving in an unfamiliar city at night. It is dark and rainy and you aren’t certain how to return to your hotel. You stop at an intersection and look both ways, while listening to the directions on your GPS system. Traffic is clear so you turn. Unexpectedly, a drunken pedestrian steps into the street as you’re turning. You cannot stop in time and hit the person. Panic sweeps over your body as you imagine the worst.


The pedestrian could ask for you to pay medical bills and lost wages. If they are disabled and can no longer work as a result of their injuries and are the breadwinner, the pedestrian’s family could sue you because they are no longer able to provide the family an income. Would your auto insurance be enough to cover what the injured party might ask for? Would you have other assets at risk if your auto insurance could not meet their demand? (Your home, bank accounts, retirement plans?)If your auto liability limit is the Illinois state minimum, it will pay a maximum of $25,000 to the injured party. This would probably not cover the cost of surgery if they needed that as a result of injury from the accident. The injured party could seek an attorney to sue you and your personal assets could be at risk. Or, your wages could be garnished to help pay the settlement.Would you be comfortable with a court withholding money from your paycheck to settle a lawsuit? Or possibly forcing you to sell your home to settle with the injured party? Would you be comfortable liquidating your bank accounts to settle with the injured party?


Worse, if the person dies and leaves a family behind, you must consider that they are now without their primary wage earner. This presents a huge financial burden to the family, which a court could hold you responsible for.You could add an umbrella liability policy to give you extra liability coverage for a minimal annual cost. Most umbrella policies start at a price of $150 per year for $1 million of coverage. This type of insurance policy protects your assets from a lawsuit and protects you from the unnecessary stress of an unfortunate situation.